The lunatic is in the hall
The lunatics are in my hall
The paper holds their folded faces to the floor
And every day the paper boy brings more
Taken from Pink Floyd’s 1973 hit “Brain Damage, ” these lyrics couldn’t have been intended to portend monetary policy in 2012. Yet strangely, they do.
The lunatic(s)… Paul Krugman (or any of his Keynesian minions)
The hall… The Federal Reserve
The paper… The US dollar (I have a few folded faces in my moneyclip right now)
The paperboy… Ben Bernanke
Today, following the thinking of the lunatic, the paperboy brought more paper — $40 billion per month to be exact — to be spent on mortgage-backed securities. Even better, the paperboy promises to keep bringing the paper for as long as he sees fit. An open-ended quantitative easing that, to my knowledge, is unprecedented.
And just to make sure there will be plenty of paper in the hall for the foreseeable future, the near-zero fed funds rate will be kept at “exceptionally low levels” until mid-2015.
Risk assets loved the news. As I type this, the DJIA is up 158 points. Gold rallied over $23. Silver bounced nearly 4%.
Equity price discovery is now officially wrecked, at least until mid-2015. Dollar-denominated commodities should move higher — including seldom used commodities like food and oil. The Fed’s balance sheet will be ballooning by nearly 1/2 trillion per year.
Those sure sound like great reasons for the stock market to march higher.
I’m breaking out my “Dow 15, 000” cap. Maybe it will keep my head from exploding.
And if your head explodes with dark forbodings too
I’ll see you on the Dark Side of the Moon